Traded Loans and Securities: Borderline Issues

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Loans – “Financial assets that are created when creditors lend funds directly to debtors, that are evidenced by non-negotiable documents ... ” (1993 SNA, page 312)

Securities other than shares – “... normally traded in the financial markets and that give ...” (1993 SNA, page 312)

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The Issues

Should traded loans be reclassified as debt securities?

Or

Should they remain loans?

If reclassified, under what circumstances traded loans become securities?

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The Issues

Should untraded securities be reclassified as debt securities?

Or

Should they remain securities?

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Existing Treatment for Loans

Classification:All manuals → loans that become negotiable be classified in securities other than shares.

Criteria:1993 SNA not specific.External Debt Guide 3.29, ESA 5.79

• Tradable and is, or has been, traded in the secondary market.

• Evidence of secondary market trading.• Fairly strict requirements – exclude one-off sales.

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Existing Treatment for Loans

Recording of resulting flows:

ESA95 imputes financial transactions.

1993 SNA, External Debt Guide, GFSM, BPM5 imply recording as other changes due to reclassification.

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Existing Treatment for Securities

No mention of reclassification.

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Discussion Points1. Do members agree that traded loans are to be reclassified as securities if a

loan becomes tradable and is, or has been, traded in the secondary market? Alternatively, do members conclude that traded loans not be reclassified as debt securities?

2. If traded loans are reclassified as debt securities, should the definition of the requirements for a secondary market be elaborated according to the criteria in the External Debt Guide or some other criteria? What are the members’ views on whether, in addition to being tradable in secondary markets, there should be a requirement that the debtor is not legally prevented from buying back the debt?

In the absence of consensus, the IMF Committee on BOP Statistics decided that the existing treatment for traded loans should be retained, i.e., they should be reclassified as securities when they meet the criteria (i.e., evidence of trading and market price) as set out in ESA95 and the External Debt Guide.

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Discussion Points

3. If traded loans are reclassified as debt securities, do members agree that the flows arising from traded loans becoming securities be treated as reclassifications in other changes in assets and liabilities account?

3½ . If traded loans are not reclassified, do members agree that loans should be broken down between traded and nontraded loans?

Views were divided on whether loans should be broken down into “traded loans” and other loans.

4. Do members agree that untraded securities should not be reclassified? The Committee decided that untraded securities should not be reclassified.